TC Energy Corp. agrees to pay an additional $ 3.3 billion for Coastal GasLink cost overruns

TC Energy Corp. has committed to provide up to $ 3.3 billion in additional bridge financing to cover cost overruns related to the Coastal GasLink pipeline project.

The Calgary-based company said on Friday it was still in a dispute with LNG Canada over planned cost increases and their potential effects over time. But TC Energy said construction on the project is continuing and is now over 50% complete.

“We cannot, of course, discuss the details of the cost and schedule discussions and issues between us because they are confidential,” said Tracy Robinson, executive vice president of TC Energy and president of Coastal GasLink, during a conference call with analysts. “But what I can say is that we are optimistic that at the end of the day we will come to an agreement among ourselves on these issues.”

TC Energy was selected by LNG Canada in 2011 to design, build, own and operate Coastal Gaslink. The 670 kilometer pipeline is intended to transport 2.1 billion cubic feet per day (Bcf / d) of natural gas to LNG Canada’s terminal, where it will be converted to a liquefied state for export to global markets.

Preliminary construction began in 2019, with an expected completion date of 2023. However, TC Energy reported earlier this year that permit delays and the impacts of COVID-19 – including a provincial health order from Colombia -British who temporarily halted construction – led to “significantly” increased cost estimates as well as potentially delayed completion of the project.

TC Energy said on Friday that it had already provided a short-term credit facility to the project, from which $ 840 million was drawn on September 30, 2021. In October, this amount was fully repaid and further drawdowns were made, which resulted in an outstanding balance of $ 175 million as of October 29. As an additional interim measure, the company said it has pledged to provide additional temporary financing, if needed, up to $ 3.3 billion.

The exact amount of additional funding that will be required will depend on an agreement with LNG Canada, although TC Energy has noted that the cost increases will ultimately be included in the final tolls for the pipeline, once Coastal GasLink is operational.

“I think it’s important to note, however, that if this ($ 3.3 billion) were needed, we would get a return on that investment,” said Joel Hunter, CFO of TC Energy. “It would be considered temporary.”

In an emailed statement, LNG Canada’s Director of General Affairs Denita McKnight said the company remains concerned about the cost increases and schedule delays proposed by TC Energy, which it says are going well into the future. – beyond what LNG Canada agreed to when it made its final investment decision in 2018.

“We are working on a business solution as to how the increased cost is handled going forward. We have not seen any evidence to support the expected cost increases,” McKnight said.

LNG Canada remains committed to getting the pipeline ready for its first shipment of LNG by “the middle of this decade,” McKnight said.

TC Energy reported third-quarter profit of $ 779 million on Friday, up from $ 904 million a year ago.

The pipeline company said profit was 80 cents per share for the quarter ended September 30, compared to 96 cents per share for the same period in 2020.

Revenue for the quarter totaled $ 3.24 billion, compared to $ 3.20 billion.

Also on Friday, TC Energy cut its forecast for annual dividend growth. The company had previously said it is aiming for a five to seven percent dividend increase this year, but is now aiming for three to five percent dividend growth per year.

CEO Francois Poirier said the company was in the midst of an “unprecedented” energy transition opportunity and had a number of clean energy projects in the pipeline, including partnerships with Pembina Pipeline Corporation to jointly develop a carbon transportation and sequestration system in Alberta, and Irving Oil will jointly develop clean energy projects in eastern Canada.

It has also partnered with electric vehicle maker Nikola Corporation to co-develop large-scale hydrogen production facilities in the United States and Canada.

“We plan to sanction around $ 7 billion in new projects in 2021,” Poirier said in a press release.

“In order to wisely fund our attractive range of growth opportunities, maintain a strong financial position and improve our already conservative and utility-like dividend payout ratios, we have shifted our outlook for dividend growth to short term, ”Poirier said.

This report by The Canadian Press was first published on November 5, 2021.

Companies in this story: (TSX: TRP)